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I wrote an article on this topic last week: Crowd funding Trends 2014

http://www.business2community.com/strategy/crowdfu...

Crowdfunding (alternately crowd financing, equity crowdfunding, crowd equity, crowd-sourced fundraising) is the collective effort of individuals who network and pool their money, usually via the Internet, to support efforts initiated by other people or organizations. Crowdfunding is used in support of a wide variety of activities, including disaster relief, citizen journalism, support of artists by fans, political campaigns, startup company funding, motion picture promotion, free software development, inventions development, scientific research, and civic projects.

Role of the crowd

The inputs of the individuals in the crowd trigger the crowdfunding process and influence the ultimate value of the offerings or outcomes of the process. Each individual acts as an agent of the offering, selecting and promoting the projects in which they believe. They will sometimes play a donor role oriented towards providing help on social projects.

Motivation for consumer participation stems from the feeling of being at least partly responsible for the success of others’ initiatives (desire for patronage), striving to be a part of a communal social initiative (desire for social participation), and seeking a payoff from monetary contributions (desire for investment).

An individual who takes part in crowdfunding initiatives tends to reveal several distinct traits: innovative orientation, which stimulates the desire to try new modes of interacting with firms and other consumers; social identification with the content, cause or project selected for funding, which sparks the desire to be a part of the initiative; (monetary) exploitation, which motivates the individual to participate by expecting a payoff.

Crowdfunding platforms

Crowdfunding platforms serve as a “network orchestrators”. They create the necessary organizational systems and conditions for resource integration among other players to take place.

Relational mediators act as an intermediary between supply and demand

Benefits for the creator

Crowdfunding campaigns provide producers with a number of benefits, beyond the strict financial gains. The following are non financial benefits of crowdfunding.

Profile – a compelling project can raise a producer's profile and provide a boost to their reputation.

Marketing – project initiators can show there is an audience and market for their project. In the case of an unsuccessful campaign, it provides good market feedback.

Audience engagement – crowd funding creates a form where project initiators can engage with their audiences. Audience can engage in the production process by following progress through updates from the creators and sharing feedback via comment features on the project's crowdfunding page.

Feedback – offering pre-release access to content or the opportunity to beta-test content to project backers as a part of the funding incentives provides the project initiators with instant access to good market testing feedback.

Proponents of the crowdfunding approach argue that it allows good ideas which do not fit the pattern required by conventional financiers to break through and attract cash through the wisdom of the crowd. If it does achieve "traction" in this way, not only can the enterprise secure seed funding to begin its project, but it may also secure evidence of backing from potential customers and benefit from word of mouth promotion in order to reach the fundraising goal.

Risks and barriers for the creator

Crowdfunding also comes with a number of potential risks or barriers.

Reputation – failure to meet campaign goals or to generate interest result in a public failure. Reaching financial goals and successfully gathering substantial public support but being unable to deliver on a project for some reason can severely negatively impact ones reputation.

IP protection – many Interactive Digital Media developers and content producers are reluctant to publicly announce the details of a project before production due to concerns about idea theft and protecting their IP from plagiarism.

Donor exhaustion – there is a risk that if the same network of supporters is reached out to multiple times, that network will eventually cease to supply necessary support.

Public fear of abuse – concern among supporters that without a regulatory framework, the likelihood of a scam of abuse of funds is high. The concern may become a barrier to public engagement.

Crowdfunding draws a crowd, investors and other interested observers who follow the progress, or lack of progress, of a project. Sometimes it proves easier to raise the money for a project than to make the project a success. Managing communications with a large number of possibly disappointed investors and supporters can be a substantial, and potentially diverting, task.

Investment crowdfunding